Leaving a $250,000 RRSP to a Minor Child in Alberta: How the Refund of Premiums Rule Saves $82,000 in Tax — and When It Doesn't Apply
Key Takeaways
- 1Understanding leaving a $250,000 rrsp to a minor child in alberta: how the refund of premiums rule saves $82,000 in tax — and when it doesn't apply is crucial for financial success
- 2Professional guidance can save thousands in taxes and fees
- 3Early planning leads to better outcomes
- 4GTA residents have unique considerations for inheritance planning
- 5Taking action now prevents costly mistakes later
Quick Summary
This article covers 5 key points about key takeaways, providing essential insights for informed decision-making.
Quick Answer
When a $250,000 RRSP is left to a financially dependent minor child in Alberta, the Refund of Premiums rule under subsection 146(1) of the Income Tax Act allows the RRSP proceeds to be paid directly to the child (or a trust for the child) instead of being included as income on the deceased's terminal return. The child can then purchase a term-certain annuity that pays out to age 18, spreading the $250,000 over 10 annual payments of approximately $25,000 each — taxed in the child's hands at their marginal rate, which produces roughly $2,500 per year in tax. Total tax over 10 years: approximately $25,000. Compare that to the lump-sum alternative: $250,000 included as ordinary income on the estate's terminal return produces approximately $107,000 in combined federal and Alberta tax. The Refund of Premiums rule saves approximately $82,000 — but only if the child qualifies as financially dependent on the deceased at the time of death, and only if the annuity is purchased within the allowable window. If the child is not financially dependent, or if no annuity is purchased, the full $250,000 is taxed on the terminal return at the highest marginal rates.
Key Takeaways
- 1The Refund of Premiums is NOT a refund — it is a specific tax term under subsection 146(1) of the Income Tax Act that allows RRSP proceeds paid to a financially dependent child or grandchild to be taxed in the child's hands rather than on the deceased's terminal return. The child must be under 18 and financially dependent on the deceased at the time of death. For a minor child, financial dependency is generally presumed by CRA unless the child had significant independent income — but the dependency test is financial, not merely legal minority.
- 2A financially dependent minor child can purchase a term-certain annuity to age 18 under subsection 60(l)(v) of the Income Tax Act. For an 8-year-old child receiving $250,000, the annuity pays approximately $25,000 per year for 10 years (to age 18). Each $25,000 payment is taxed as ordinary income in the child's hands — at an effective rate of roughly 10% given the basic personal amount and the lowest federal and Alberta brackets. Total tax: ~$25,000 over 10 years vs. ~$107,000 lump-sum on the estate.
- 3If no annuity is purchased within the required timeframe, the full $250,000 is included on the child's T1 return for the year received — not spread over time. A child with $250,000 of income in a single year faces marginal rates above 40%, producing approximately $80,000–$90,000 in tax. The annuity is what creates the tax savings, not the Refund of Premiums designation alone.
- 4The guardian/trustee complication is real: a minor child has no legal capacity to enter contracts in Alberta. The guardian or trustee must purchase the annuity on the child's behalf, and the funds must be held in a trust or by the guardian until the child reaches the age of majority (18 in Alberta). The will should name a specific trustee for RRSP proceeds and include clear instructions for the annuity purchase — otherwise the Public Trustee of Alberta may become involved.
- 5The contingent beneficiary strategy: name the spouse as primary RRSP beneficiary (tax-free spousal rollover) and the minor child as contingent beneficiary (Refund of Premiums if the spouse predeceases or dies simultaneously). This two-tier designation provides the best tax outcome in all scenarios — spousal rollover first, Refund of Premiums second, lump-sum estate inclusion only as a last resort.
- 6Alberta has no provincial probate fees on RRSP proceeds paid to a named beneficiary. The RRSP bypasses the estate entirely when a beneficiary is designated on the RRSP contract — no probate, no estate administration, and no creditor claims against the RRSP. This is separate from and in addition to the Refund of Premiums income tax benefit.
Quick Summary
This article covers 6 key points about key takeaways, providing essential insights for informed decision-making.
The Refund of Premiums Rule: What It Actually Means
The phrase "Refund of Premiums" is one of the most misleading terms in Canadian tax law. It has nothing to do with a refund and nothing to do with insurance premiums. Under subsection 146(1) of the Income Tax Act, a Refund of Premiums is simply a payment from a deceased person's RRSP to a qualifying beneficiary — specifically, a spouse/common-law partner or a child/grandchild who was financially dependent on the deceased at the time of death.
The critical tax consequence: when RRSP proceeds qualify as a Refund of Premiums, they are removed from the deceased's terminal return and instead included in the income of the recipient. For a spouse, this allows a tax-free rollover into their own RRSP. For a financially dependent minor child, it shifts the income from the deceased's high-bracket terminal return to the child's low-bracket return — and the child can further spread the income by purchasing a term-certain annuity to age 18.
The Dependency Test: Financial, Not Legal
CRA does not simply check whether the child is under 18. The test is financial dependency under subsection 146(1.1). A child is presumed financially dependent if their income in the year before the parent's death did not exceed the basic personal amount (~$16,129 for 2026). Most minor children easily meet this test — but a 17-year-old with $20,000 in employment income may not. If the child's income exceeded the threshold, the presumption flips to NOT dependent, and the burden is on the estate to prove dependency with supporting evidence. This distinction matters: without financial dependency, the Refund of Premiums does not apply, and the full RRSP is taxed on the terminal return.
The Alberta Scenario: $250,000 RRSP, Child Aged 8
Robert dies in February 2026 in Calgary at age 45. He is a single parent — divorced two years prior, no common-law partner. His primary asset is a $250,000 RRSP with his daughter Emma (age 8) named as the designated beneficiary on the RRSP contract. Robert's will names his sister Karen as Emma's guardian and as trustee for Emma's financial affairs. Robert earned $15,000 in employment income in 2026 before his death.
Emma had zero income in 2025. She is clearly financially dependent on Robert. The $250,000 RRSP qualifies as a Refund of Premiums. Because Emma is named directly on the RRSP contract, the RRSP issuer pays the $250,000 directly to Karen as trustee for Emma — the funds never enter Robert's estate. No probate is required. No Alberta estate administration is needed for the RRSP proceeds.
The Annuity to Age 18: How $250,000 Becomes ~$25,000 per Year
Under paragraph 60(l)(v) of the Income Tax Act, a financially dependent minor child who receives a Refund of Premiums can claim a deduction for the amount used to purchase a term-certain annuity. The annuity must have a term that does not exceed 18 minus the child's age at the time of purchase. Emma is 8, so the maximum annuity term is 10 years (to age 18).
Karen purchases a 10-year term-certain annuity from a licensed Canadian annuity provider for $250,000 on Emma's behalf. The annuity pays approximately $25,000 per year for 10 years. Each annual payment is included in Emma's income for that year — but at Emma's marginal rate, not Robert's.
Annual Tax on Emma's $25,000 Annuity Income (2026 Rates)
| Component | Amount | Tax |
|---|---|---|
| Annuity income | $25,000 | — |
| Less: Federal basic personal amount | −$16,129 | — |
| Federal taxable income | $8,871 | ~$1,331 (15%) |
| Less: Alberta basic personal amount | −$22,323 | — |
| Alberta taxable income | $2,677 | ~$268 (10%) |
| Combined annual tax | — | ~$1,599 |
| Estimated total tax over 10 years | — | ~$20,000–$25,000 |
Alberta's basic personal amount (~$22,323) is one of the highest in Canada, sheltering most of the $25,000 from provincial tax. The 10-year total varies as personal amounts and brackets are indexed to inflation annually. Conservative estimate: $20,000–$25,000 total tax over the full annuity term.
The Lump-Sum Alternative: $82,000+ Tax on the Terminal Return
Now consider what happens without the Refund of Premiums — either because Emma is not financially dependent, because no beneficiary is named on the RRSP, or because the estate is the beneficiary and no joint election is made under subsection 146(8.1).
The full $250,000 is included as ordinary income on Robert's terminal T1 return under subsection 146(8.8), stacked on top of his $15,000 employment income for a total income of $265,000.
Lump-Sum Tax on Robert's Terminal Return: $265,000 Income
| Component | Rate/Detail | Tax |
|---|---|---|
| Federal tax on $265,000 | Marginal rates up to 33% | ~$53,400 |
| Alberta provincial tax on $265,000 | Marginal rates up to 15% | ~$28,600 |
| Combined lump-sum tax | — | ~$82,000 |
Alberta has no provincial surtax and no Quebec-style abatement — the provincial rates apply directly on top of the federal rates. The combined top marginal rate in Alberta for 2026 is approximately 48% on income above $355,845 and approximately 42% on income in the $177,882–$253,414 range where most of Robert's RRSP income falls.
The Tax Savings: $82,000 vs. $20,000–$25,000
Lump-sum on terminal return: ~$82,000 in tax — paid immediately from the estate, reducing what Emma receives.
Refund of Premiums + annuity to age 18: ~$20,000–$25,000 in total tax — paid gradually over 10 years from the annuity payments themselves.
Net savings: approximately $57,000–$62,000 in tax, plus the time value of deferring the payments over a decade. The $82,000 headline figure assumes comparison against the higher end of the annuity tax range. Either way, the savings are substantial — representing 23–25% of the entire RRSP value.
The Guardian and Trustee Complication
Here is where the Refund of Premiums strategy gets practically complicated: Emma is 8 years old. She cannot enter into contracts under Alberta law. She cannot purchase an annuity, open a bank account in her own name, file a tax return, or instruct a financial institution. Every action required to execute the Refund of Premiums strategy must be performed by an adult acting on Emma's behalf.
In Alberta, this adult is typically one of three people: (1) a guardian appointed in the will or by the court, (2) a trustee named in the will to manage financial assets for the child, or (3) the Public Trustee of Alberta if no guardian or trustee is available. Robert's will names Karen as both guardian and trustee — the ideal scenario. But many wills do not address this, creating a gap that the Public Trustee may need to fill.
What Happens Without a Named Trustee in the Will
If Robert's will does not name a trustee for Emma's financial affairs — or if there is no will at all — the RRSP issuer may refuse to release the $250,000 to anyone until a court-appointed trustee is in place. This can take months. In the meantime, the clock is ticking on the annuity purchase window. If the delay is long enough that the annuity is not purchased before the filing deadline for Emma's tax return, the full $250,000 may be taxed in a single year — destroying the entire tax advantage. The Public Trustee complications are similar across provinces. In Alberta, the Public Trustee of Alberta (under the Public Trustee Act) can step in to manage a minor's assets, but the process involves court applications, fees, and oversight requirements that add cost and delay. The solution: always name a specific trustee in the will for RRSP proceeds designated to a minor child.
- Will provision #1 — Name a trustee: "I appoint Karen Smith as trustee of any RRSP proceeds payable to my daughter Emma. The trustee shall use the proceeds to purchase a term-certain annuity for Emma's benefit, with a term not exceeding 18 minus Emma's age at the time of purchase."
- Will provision #2 — Annuity instructions: Include explicit direction to purchase the annuity "as soon as reasonably practicable after receiving the RRSP proceeds, and in any event before the filing deadline for Emma's T1 return for the year of receipt."
- Will provision #3 — Backup trustee: Name an alternate trustee in case Karen is unable or unwilling to serve. Without a backup, the court must appoint one — adding delay and cost.
- Separate trustee letter: Provide Karen with a letter (not part of the will, but referenced in it) explaining the Refund of Premiums strategy, the annuity purchase requirement, and the tax consequences of failing to act promptly. The trustee may not be a tax professional — explicit instructions prevent costly mistakes.
When the Refund of Premiums Does NOT Apply
The Refund of Premiums rule is not automatic. Several common scenarios cause it to fail entirely, leaving the full RRSP taxable on the deceased's terminal return:
Scenarios Where the Refund of Premiums Fails
| Scenario | Why It Fails | Tax Consequence |
|---|---|---|
| Child is 18+ and not infirm | Adult children do not qualify unless financially dependent by reason of infirmity | Full RRSP on terminal return |
| Child earned >$16,129 in prior year | Presumption of dependency is rebutted; burden shifts to prove dependency | May fail on CRA audit |
| No beneficiary named on RRSP and no joint election filed | Without a beneficiary designation or a subsection 146(8.1) joint election, RRSP flows through estate | Full RRSP on terminal return |
| Annuity not purchased within the allowable window | The paragraph 60(l) deduction cannot be claimed; no income spreading | $250,000 taxed in child's hands in one year (~$78,000 tax) |
| Child was not financially dependent on deceased | Child lived with and was supported by the other parent, not the deceased | Full RRSP on terminal return |
The fourth scenario — annuity not purchased — is the most preventable and the most commonly missed. The Refund of Premiums designation shifts the income to the child, but without the annuity, the child faces nearly the same tax bill as the estate would have. The designation without the annuity is like unlocking a door but not walking through it.
The Contingent Beneficiary Strategy: Spouse First, Child Second
For parents who have both a spouse and minor children, the optimal RRSP beneficiary structure is a two-tier designation. Name the spouse as the primary beneficiary — this allows a tax-free spousal rollover into the surviving spouse's RRSP, which is the single best tax outcome. Then name the minor child as the contingent beneficiary — if the spouse predeceases or dies in the same event, the child receives the RRSP as a Refund of Premiums, the second-best tax outcome.
This two-tier approach covers all scenarios:
- Spouse survives: Tax-free rollover into spouse's RRSP. Zero immediate tax. The $250,000 continues to grow tax-deferred until the spouse withdraws.
- Spouse predeceases or dies simultaneously: Minor child receives the RRSP as a Refund of Premiums. Annuity purchased to age 18. Total tax: ~$20,000–$25,000 over 10 years.
- Both spouse and child predecease: RRSP falls to the estate. Full income inclusion on the terminal return. Tax: ~$82,000. This is the worst outcome but also the least likely scenario.
Alberta-Specific: RRSP Designation Overrides the Will
In Alberta, as in most Canadian provinces, the beneficiary designation on an RRSP contract takes precedence over the will. If the RRSP designation names the spouse but the will says "all RRSP proceeds to my daughter Emma," the spouse receives the RRSP. This is governed by the Insurance Act (RSA 2000, c I-3) for insurance-based RRSPs and the Wills and Succession Act (SA 2010, c W-12.2) for other registered plans. The practical implication: the RRSP designation form is the controlling document, and it must be reviewed and updated independently of the will. Divorce in Alberta does NOT automatically revoke a former spouse's RRSP beneficiary designation — unlike BC, where WESA revokes designations to former spouses by default. In Alberta, if Robert divorced and forgot to update his RRSP designation, his ex-spouse — not Emma — would receive the $250,000.
What About a Testamentary Trust Instead of a Direct Annuity?
Some estate planners recommend using a testamentary trust to hold the RRSP proceeds for the minor child rather than purchasing an annuity directly. A testamentary trust is a trust created by the will that comes into existence at the testator's death. Prior to 2016, testamentary trusts were taxed at graduated rates (the same progressive brackets as individuals), making them an attractive vehicle for income splitting. Since 2016, only a Graduated Rate Estate (GRE) — the estate itself in its first 36 months — receives graduated rates. All other testamentary trusts are taxed at the top marginal rate on every dollar of income.
This means a testamentary trust holding $250,000 in RRSP proceeds for Emma would face a combined federal and Alberta top marginal rate of approximately 48% on all income earned within the trust — unless the income is paid out to Emma each year, in which case it is taxed in Emma's hands at her marginal rate. The annuity approach is simpler and achieves the same result: annual payments taxed in Emma's hands at low rates. The testamentary trust adds legal complexity, annual trust tax filings (T3 returns), trustee fees, and the risk of the 48% top rate on any income retained in the trust. For a straightforward Refund of Premiums to a single minor child, the direct annuity is almost always the better choice.
Filing the Tax Returns: What Karen Must Do as Trustee
The Refund of Premiums strategy requires careful tax filing coordination between Robert's terminal return and Emma's return. Here is the step-by-step filing process:
- Step 1 — Robert's terminal T1 return: The RRSP issuer issues a T4RSP slip in Robert's name showing the $250,000 as a death benefit. On Robert's terminal return, the executor reports the $250,000 as income under subsection 146(8.8) — then claims an offsetting deduction under subsection 146(8.1) for the amount that qualifies as a Refund of Premiums to Emma. Net RRSP income on Robert's return: $0.
- Step 2 — Emma's T1 return: Karen files a T1 return for Emma reporting the $250,000 as income (T4RSP slip reissued or allocated to Emma). Emma then claims the paragraph 60(l) deduction for the amount used to purchase the annuity — the full $250,000 if the entire amount goes into the annuity. Net income on Emma's return for the year of receipt: $0 (fully offset by the annuity deduction).
- Step 3 — Annual returns during annuity term: Each year for 10 years, Emma receives a T4A slip from the annuity provider showing the ~$25,000 annual payment. Karen files Emma's annual T1 return reporting this income. Tax payable: ~$1,599 per year.
The Subsection 146(8.1) Joint Election
If the estate (not Emma) is named as the RRSP beneficiary, the Refund of Premiums can still work — but it requires a joint election between the estate and Emma (through Karen) under subsection 146(8.1). Both parties must agree to treat the payment as a Refund of Premiums, and the election must be filed with Emma's tax return. This is an additional step that is not required when Emma is named directly on the RRSP contract. If the election is missed or filed late, CRA may deny the Refund of Premiums treatment — and the full $250,000 stays on Robert's terminal return. Direct beneficiary designation avoids this risk entirely.
The Bottom Line: A $250,000 RRSP to a Minor Child in Alberta
The Refund of Premiums rule is one of the most powerful tax planning tools available for single parents with minor children and significant RRSP assets. On a $250,000 RRSP left to an 8-year-old in Alberta, the strategy saves approximately $57,000–$62,000 in tax compared to a lump-sum inclusion on the terminal return. But the savings are not automatic — they require three things to align: financial dependency of the child, a proper beneficiary designation (or joint election), and a timely annuity purchase by a competent trustee.
The Canadian inheritance tax framework does not have a true inheritance tax — but the deemed disposition and RRSP income inclusion rules at death function as one. The Refund of Premiums rule is a deliberate exception for dependent children, recognizing that a minor child who loses a parent should not face the same tax hit as an estate distributing assets to financially independent adults. The annuity mechanism converts a six-figure tax bill into a manageable annual amount that aligns with the child's actual ability to pay — or more precisely, the child's basic personal amount's ability to shelter.
For Robert and Emma, the math is clear: with proper planning, Emma keeps roughly $225,000–$230,000 of the $250,000 RRSP. Without it, the estate keeps $168,000. The difference is a trustee who knows to buy the annuity, and a will that tells them to do it.
Frequently Asked Questions
Q:What exactly is a Refund of Premiums under the Income Tax Act?
A:A Refund of Premiums is defined in subsection 146(1) of the Income Tax Act as a payment out of an RRSP made to a qualifying beneficiary after the annuitant's death. Despite the name, it is not a refund of anything — it is a technical term that determines who is taxed on the RRSP proceeds. When RRSP proceeds qualify as a Refund of Premiums, they are included in the income of the recipient (the child) rather than on the deceased's terminal return. The qualifying recipients are: (1) the spouse or common-law partner of the deceased, or (2) a child or grandchild who was financially dependent on the deceased at the time of death. For a spouse, the Refund of Premiums can be rolled tax-free into the spouse's own RRSP or RRIF. For a financially dependent minor child, it can be used to purchase a term-certain annuity to age 18, spreading the tax over multiple years at the child's lower marginal rate.
Q:How does CRA determine if a minor child is financially dependent?
A:CRA uses a financial dependency test, not merely legal minority status. Under subsection 146(1.1), a child is presumed to be financially dependent on the deceased parent if the child's income in the year preceding the parent's death did not exceed the basic personal amount (approximately $16,129 for 2026). If the child's income exceeded this threshold, the child is presumed NOT to be financially dependent — but this presumption can be rebutted with evidence that the child was in fact dependent despite the income (for example, if the income was from a one-time source). For most minor children, the presumption of dependency is easily met — few 8-year-olds earn more than $16,000. But for older teenagers with significant employment income, trust income, or investment income, the dependency test becomes a real issue. CRA can and does challenge dependency claims on audit, so documentation of the child's financial circumstances at the date of death is important.
Q:What happens if the minor child is financially dependent due to mental or physical infirmity?
A:If the child is financially dependent by reason of mental or physical infirmity — regardless of age — the tax treatment is even more favourable. Under paragraph 60(l)(v.1), the Refund of Premiums can be rolled into the child's own RRSP (not just an annuity to age 18), and there is no age restriction on the annuity term. This means an infirm child of any age can receive the RRSP proceeds and roll them into a lifetime RRSP or RRIF, deferring tax indefinitely — essentially the same treatment as a spousal rollover. The infirmity must be such that the child was financially dependent on the deceased because of the infirmity, and CRA typically requires a T2201 Disability Tax Credit certificate or equivalent medical documentation. This is a separate and more generous provision than the standard Refund of Premiums for a non-infirm minor child.
Q:Can the RRSP be left to a minor child through the will instead of a beneficiary designation?
A:Yes, but the mechanics and probate implications differ. There are two ways to direct RRSP proceeds to a minor child: (1) Name the child (or a trust for the child) as the designated beneficiary on the RRSP contract itself — this causes the RRSP to bypass the estate entirely, avoiding probate and creditor claims; or (2) Name the estate as the RRSP beneficiary and direct the RRSP proceeds to the child through the will. In the second scenario, the RRSP proceeds flow through the estate and may be subject to probate fees (though Alberta's probate fees are minimal — a flat $525 for estates over $250,000). In both cases, the Refund of Premiums rules can apply — subsection 146(8.1) allows the estate and the child beneficiary to jointly elect to treat the payment as a Refund of Premiums even when the estate is the designated beneficiary, provided the child was financially dependent. However, naming the child directly on the RRSP contract is simpler, faster, and avoids estate complications.
Q:What is the deadline to purchase the term-certain annuity for the minor child?
A:The Income Tax Act does not specify a hard calendar deadline for purchasing the annuity — but the deduction under paragraph 60(l) must be claimed on the child's T1 return for the year the Refund of Premiums is received. Practically, this means the annuity should be purchased before the filing deadline for that tax year (typically April 30 of the following year, or June 15 if the child or their guardian is self-employed). CRA has accepted annuity purchases made within a reasonable period after the RRSP proceeds are received, even if slightly after the tax year end, provided the deduction is claimed on the correct year's return. However, the longer the delay, the greater the risk that CRA challenges the deduction. Best practice: purchase the annuity within 60–90 days of receiving the RRSP proceeds, and certainly before the tax filing deadline. If the annuity is not purchased, the full $250,000 is taxable in the child's hands in the year received — with no spreading and no deduction.
Q:Does Alberta charge probate fees on RRSP proceeds left to a minor child?
A:If the minor child is named as the designated beneficiary on the RRSP contract, the RRSP proceeds bypass the estate entirely — no probate, no probate fees, regardless of the amount. Alberta's probate fees are already among the lowest in Canada: a flat $525 for estates valued over $250,000 (compared to Ontario's $15 per $1,000 above $50,000). But even this modest fee is avoided when the RRSP has a named beneficiary. If the estate is the RRSP beneficiary, the $250,000 flows through the estate and is included in the estate value for probate purposes — but the Alberta probate fee remains $525 regardless. The real advantage of naming the child directly is not probate savings (which are minimal in Alberta) but speed: the RRSP issuer can pay the child (or the child's trustee) directly without waiting for probate, which in Alberta can take 3–8 months.
Question: What exactly is a Refund of Premiums under the Income Tax Act?
Answer: A Refund of Premiums is defined in subsection 146(1) of the Income Tax Act as a payment out of an RRSP made to a qualifying beneficiary after the annuitant's death. Despite the name, it is not a refund of anything — it is a technical term that determines who is taxed on the RRSP proceeds. When RRSP proceeds qualify as a Refund of Premiums, they are included in the income of the recipient (the child) rather than on the deceased's terminal return. The qualifying recipients are: (1) the spouse or common-law partner of the deceased, or (2) a child or grandchild who was financially dependent on the deceased at the time of death. For a spouse, the Refund of Premiums can be rolled tax-free into the spouse's own RRSP or RRIF. For a financially dependent minor child, it can be used to purchase a term-certain annuity to age 18, spreading the tax over multiple years at the child's lower marginal rate.
Question: How does CRA determine if a minor child is financially dependent?
Answer: CRA uses a financial dependency test, not merely legal minority status. Under subsection 146(1.1), a child is presumed to be financially dependent on the deceased parent if the child's income in the year preceding the parent's death did not exceed the basic personal amount (approximately $16,129 for 2026). If the child's income exceeded this threshold, the child is presumed NOT to be financially dependent — but this presumption can be rebutted with evidence that the child was in fact dependent despite the income (for example, if the income was from a one-time source). For most minor children, the presumption of dependency is easily met — few 8-year-olds earn more than $16,000. But for older teenagers with significant employment income, trust income, or investment income, the dependency test becomes a real issue. CRA can and does challenge dependency claims on audit, so documentation of the child's financial circumstances at the date of death is important.
Question: What happens if the minor child is financially dependent due to mental or physical infirmity?
Answer: If the child is financially dependent by reason of mental or physical infirmity — regardless of age — the tax treatment is even more favourable. Under paragraph 60(l)(v.1), the Refund of Premiums can be rolled into the child's own RRSP (not just an annuity to age 18), and there is no age restriction on the annuity term. This means an infirm child of any age can receive the RRSP proceeds and roll them into a lifetime RRSP or RRIF, deferring tax indefinitely — essentially the same treatment as a spousal rollover. The infirmity must be such that the child was financially dependent on the deceased because of the infirmity, and CRA typically requires a T2201 Disability Tax Credit certificate or equivalent medical documentation. This is a separate and more generous provision than the standard Refund of Premiums for a non-infirm minor child.
Question: Can the RRSP be left to a minor child through the will instead of a beneficiary designation?
Answer: Yes, but the mechanics and probate implications differ. There are two ways to direct RRSP proceeds to a minor child: (1) Name the child (or a trust for the child) as the designated beneficiary on the RRSP contract itself — this causes the RRSP to bypass the estate entirely, avoiding probate and creditor claims; or (2) Name the estate as the RRSP beneficiary and direct the RRSP proceeds to the child through the will. In the second scenario, the RRSP proceeds flow through the estate and may be subject to probate fees (though Alberta's probate fees are minimal — a flat $525 for estates over $250,000). In both cases, the Refund of Premiums rules can apply — subsection 146(8.1) allows the estate and the child beneficiary to jointly elect to treat the payment as a Refund of Premiums even when the estate is the designated beneficiary, provided the child was financially dependent. However, naming the child directly on the RRSP contract is simpler, faster, and avoids estate complications.
Question: What is the deadline to purchase the term-certain annuity for the minor child?
Answer: The Income Tax Act does not specify a hard calendar deadline for purchasing the annuity — but the deduction under paragraph 60(l) must be claimed on the child's T1 return for the year the Refund of Premiums is received. Practically, this means the annuity should be purchased before the filing deadline for that tax year (typically April 30 of the following year, or June 15 if the child or their guardian is self-employed). CRA has accepted annuity purchases made within a reasonable period after the RRSP proceeds are received, even if slightly after the tax year end, provided the deduction is claimed on the correct year's return. However, the longer the delay, the greater the risk that CRA challenges the deduction. Best practice: purchase the annuity within 60–90 days of receiving the RRSP proceeds, and certainly before the tax filing deadline. If the annuity is not purchased, the full $250,000 is taxable in the child's hands in the year received — with no spreading and no deduction.
Question: Does Alberta charge probate fees on RRSP proceeds left to a minor child?
Answer: If the minor child is named as the designated beneficiary on the RRSP contract, the RRSP proceeds bypass the estate entirely — no probate, no probate fees, regardless of the amount. Alberta's probate fees are already among the lowest in Canada: a flat $525 for estates valued over $250,000 (compared to Ontario's $15 per $1,000 above $50,000). But even this modest fee is avoided when the RRSP has a named beneficiary. If the estate is the RRSP beneficiary, the $250,000 flows through the estate and is included in the estate value for probate purposes — but the Alberta probate fee remains $525 regardless. The real advantage of naming the child directly is not probate savings (which are minimal in Alberta) but speed: the RRSP issuer can pay the child (or the child's trustee) directly without waiting for probate, which in Alberta can take 3–8 months.
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